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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT, AM & MS. KAVITHA RAJAGOPAL, JM
O R D E R Per Kavitha Rajagopal, J M:
The captioned appeals have been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Years (‘A.Y.’ for short) 2013-14 & 2014-15.
As the facts are identical in both these appeals, we hereby pass a consolidated order, by taking as a lead case for the sake of convenience.
The assessee has challenged the grounds of disallowance made u/s. 14A of the Act read with Rule 8D(ii) and 8D(iii) of the I. T. Rules, 1962. The assessee has also facts are that the assessee company is engaged in the business of trading in shares and derivatives. The assessee filed its return of income dated 28.09.2013, declaring total income at Rs.Nil. The assessee’s case was selected for scrutiny and the assessment order dated 26.02.2016 was passed u/s. 143(3) of the Act where the Assessing Officer ('A.O.' for short) made addition/disallowance u/s. 14A read with Rule 8D on account of disallowance of interest expenses, addition u/s. 68 of the Act pertaining to unsecured loans amounting to Rs.2,92,10,000/- along with the other disallowances. The assessee was in appeal before the first appellate authority who vide order dated 21.03.2023 upheld the addition/disallowance made by the A.O.
The assessee is in appeal before us, challenging the order of the first appellate authority.
Ground no. 1 pertains to the addition made u/s. 14A read with Rule 8D(ii) and 8D(iii) of the I. T. Rules. It is observed that the assessee firm has made investment in equity shares amounting to Rs.2,00,85,540/-. The A.O. during the assessment proceeding stated that the assessee has not disallowed expenses u/s. 14A of the Act, pertaining to income earned out of equity shares and mutual funds which are not includable in the total income and are exempt u/s. 10(34) of the Act. The A.O. has recorded his non satisfaction by not convinced with the submission of the assessee that no expense was directly incurred for earning of the exempt income. The A.O. by relying on the decision of Asstt.
CIT, Range 10(1), Mumbai vs. Citi Corp Finance (India) Ltd. [2007) 12 SOT 248 (Mum) and the decision of the Tribunal in the case of ITO v. Daga Capital Management Pvt. Ltd. aggregate of Rs.3,75,217/- under Rule 8D(ii) of the Rules towards interest expenses of Rs.67,55/- under Rule 8D(iii) towards admin expenses. The ld. CIT(A) upheld the addition made by the A.O.
The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee had not earned any exempt dividend income and that the lower authorities have erred in disallowing the interest expenses and admin expenses u/s. 14A under Rule 8D. The ld. AR brought our attention to page no. 5 of the paper book where in the P & L account, the assessee has stated that the assessee has not earned any exempt income during the year under consideration and this substantiates the claim of the assessee. The ld. AR further contended that there was no nexus between borrowed fund and the investment made as the assessee had acquired shares out of own funds and not from borrowed funds.
The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and stated that since the assessee has not made any suo moto disallowance, the lower authorities was justified in invoking the provision of section 14A read with Rule 8D of the Rules. The ld. DR relied on the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record. It is observed from the assessee’s submissions that the partners capital balance as on 31.03.2013 was Rs.2,80,26,152/- and the total investment in the shares was Rs.2,00,85,540/- where from it can be presumed that the assessee had sufficient owned funds which are non interest bearing funds. The assessee’s contention that there are no considered by the lower authorities for the reason that though the assessee had not made any investment during the year under consideration, the assessee ought to have incurred certain expenditure to maintain the existing investment. On perusal of the financials of the assessee submitted by the ld. AR, we find that the assessee has not earned any exempt income during the year under consideration. It is also a settled proposition of law that the disallowance to be computed under Rule 8D should be confined to the exempt income earned and not beyond that. In the present case in hand, we do not find any justification in disallowing the expenditure on the ground that the assessee has not made suo moto disallowance for the fact that the assessee has not claimed any exempt income u/s. 10(34) of the Act. We would like to place our reliance on the decision of the Hon'ble High Court of Delhi in the case of Cheminvest Limited vs. CIT (in ITA 749/2014 vide order dated 02.09.2015), wherein it was held that no disallowance u/s. 14A is warranted when the assessee has not earned any exempt income during the relevant year. The relevant extract of the said decision is cited hereunder for ease of ready reference:
In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression „does not form part of the total income‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.
By respectfully following the above said decision, we are of the considered view that no disallowance u/s. 14A read with Rule 8D of the I. T. Rules is warranted in assessee’s case where the assessee has not earned any exempt income during the year under consideration. Thus, ground no. 1 raised by the assessee is allowed. Ground no. 1.1 is an alternate ground where the assessee has claimed that in case of disallowance u/s. the submission made by the assessee, it is evident that the assessee has not earned any exempt income during the year under consideration and, therefore, this ground of appeal raised by the assessee becomes infructuous.
10. Ground no. 2 pertains to the addition made u/s. 68 of the Act on account of unsecured loan. The facts are that the assessee is said to have availed loans from around 10 parties aggregating to Rs.2,92,10,000/-, the details of which are tabulated as under :
Sr. Name of Lender Rs. No. 1 Hinal Parikh 2,00,000 2 Aneel A & Co. 40,00,000 3 Chavda Brothers 15,00,000 4 Mihir Consultancy & Trading Co. 25,00,000 5 Manoj Mittal HUF 16,70,000 6 Rajeev Mittal HUF 16,70,000 7 Sanjeev R Mittal 16,70,000 8 Pragati Gems Pvt. Ltd. 50,00,000 9 Vinit Enterprises 55,00,000 10 Jay Shree Procon Pvt. Ltd. 55,00,000 Total 2,92,10,000
The assessee was asked to furnish the details to substantiate the identity and creditworthiness of the parties and genuinity of the transaction by providing confirmation letter from the parties concerned, ITRs, balance sheet, P & L account and other documentary evidences. The A.O. in the assessment order has specified that complete details of the bank statement, ITR and balance sheet were not furnished by the assessee and even confirmation letter of one party amongst the 10 was also not furnished. The A.O. made an addition on the entire loan amount aggregating to Rs.2,92,10,000/- on the ground that the assessee has failed to prove the identity and creditworthiness of the parties and also the genuinity of the said transaction. The ld. CIT(A) upheld the addition made by the A.O. u/s. 68 of the Act for the reason that the assessee has failed to creditworthiness.
The ld. AR contended that the assessee has filed additional evidence before the ld. CIT(A) and the same has been specified at pg. no. 4 of the order of the ld. CIT(A). The ld. AR further stated that the ld. CIT(A) has failed to consider the additional evidences filed before the first appellate authority. The ld. AR prayed for remanding this issue back to the file of the ld. CIT(A). The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and stated that the assessee has failed to discharge its onus before the lower authorities. The ld. DR relied on the order of the lower authorities.
We have heard the rival submissions and perused the materials available on record. It is evident from the order of the ld. CIT(A) that the assessee has filed additional evidences before the first appellate authority but the same was not appreciated by the ld. CIT(A) in his order for the reason that there is no finding as to whether the ld. CIT(A) has admitted additional evidence under Rule 46A of the I T Rules 1962. Considering the submission of the ld. AR, we deem it fit to remand this issue back to the file of the ld. CIT(A) for the purpose of admitting the additional evidence proposed to be filed by the assessee, which was also filed before the ld. CIT(A) during the first appellate proceeding.
The ld. CIT(A) is directed to give a finding on the additional evidence filed by the assessee and to decide the issue of addition made u/s. 68 of the Act on the merits of the case by giving sufficient opportunity to either side. Therefore, ground no. 2 raised by the assessee is allowed for statistical purposes.
Ground no. 3 being general in nature requires no separate adjudication.
The above observation in applies mutatis mutandis to this appeal also.
In the result, both the appeals filed by the assessee are partly allowed.
Order pronounced in the open court on 22.08.2023.